What Does it Mean to Pay Yourself First?

What does it mean to pay yourself first? This means you should pay your own savings and investments accounts before spending on wants or sometimes even needs.

For example, paying yourself first can include putting money into your retirement accounts such as a 401K or Roth IRA, paying into a health savings account or creating an emergency fund.

And paying off debt this can all be accomplished by automatic transfers and by splitting your direct deposit. With the pay yourself first method, you guide your spending around your savings goals. To start this method you need to:

Assess your spending

You can do this by reviewing your bank statements and credit card statements.

Determine how much to pay yourself

This can be accomplished by using the 50/30/20 approach 20% of your monthly income goes toward debt repayment and savings, 30% goes to wants (such as shopping, dining out,hobbies) an 50% goes to necessities (groceries, housing utilities, health insurance car payment etc.)

Identify your savings goals

Make a list of your short term and long term savings goals. We recommend saving for an emergency fund and a retirement as first priority. Keep in mind, each person will have different saving goals and needs. 

Adjust as needed

You should have enough money coming in to cover your needs, wants and savings, if you find yourself coming up short, you can easily readjust. Don’t delay, pay yourself today!